Vance wants to break the dollar’s global reserve currency status: Why American consumers would pay

A recently resurfaced video of Vice President J.D. Vance has brought renewed attention to his argument that the US dollar’s status as the world’s reserve currency is a raw deal for America. Vance contends that global demand for dollars generates demand for dollar-denominated assets, which supports the dollar’s value. In his view, that makes American exports more expensive for foreign buyers and puts US producers at a competitive disadvantage.

Vance therefore views the dollar’s international role as something akin to a “resource curse,” at least from the perspective of American producers competing abroad. But whether that amounts to a curse raises the larger question of what the US gains from the global role of the dollar.

It is worth acknowledging Vance’s point about a stronger dollar. Suppose an American manufacturer sells a product for $1,000. If the dollar appreciates, a foreign customer must spend more of their own currency to buy that same product. The American producer can either keep its $1,000 price and risk losing sales to foreign competitors or lower its dollar price to offset the exchange-rate effect, thereby reducing its margins. Either way, the stronger dollar makes it harder for some American producers to compete.

That is a genuine cost for affected producers. But it is only one side of the economic effects of a strong dollar. The mistake is to treat the producer-side disadvantage as though it were the only effect that matters.

With a stronger dollar, American consumers can buy imported goods at lower prices and have greater purchasing power when they travel or spend money abroad. American businesses also benefit when imported components, machinery, and raw materials cost less, which lowers their production expenses.

Meanwhile, competition from cheaper imports can pressure domestic producers to keep their own prices down, which benefits consumers through lower prices and by giving them alternatives when domestic products become more expensive.

That makes the policy alternative more important. A government that deliberately weakened the dollar to give American exporters a price advantage would also make imports more expensive. The same exchange rate that makes an American product cheaper for a foreign buyer makes a foreign product more expensive for an American buyer. In effect, policymakers would be imposing a consumer tax to confer a benefit on exporters.

Nor would the effect stop at the checkout counter. Many American manufacturers rely on imported inputs. A weaker dollar would raise those costs as well, meaning that the policy could make life more expensive for some of the very producers it was supposed to help.

The logic is similar to the case for tariffs. Both seek to make American producers more competitive by making foreign goods relatively more expensive. Both also face the same problem: raising the cost of imports may hurt the very producers the policy is ostensibly made to protect.

So why should millions of consumers pay more so that a narrower group of exporters can become more competitive? That is essentially the logic of protectionism: government intervenes to give particular producers an advantage while spreading the costs across everyone else.

As CEI Vice President for Strategy and Senior Fellow Iain Murray and CEI Senior Economist Ryan Young put it plainly in their study on the case for free trade, “exports are the price we pay for imports.” Exporting uses workers, capital, and other scarce resources to produce things foreigners want. Those resources have alternative uses, which include producing things Americans value.

Instead of trying to steer those resources toward favored industries, policymakers should allow individuals and businesses to decide what is worth producing through voluntary exchange. The point of trade is not to produce exports. It is to allow people to obtain goods and services they value.

There is another reason to be wary of deliberately weakening the dollar. Its international role provides advantages beyond trade. Global demand for dollar assets supports deep, liquid financial markets, which give Americans access to a vast pool of international capital. That demand also reflects confidence in US institutions and markets. Making American exports cheaper may sound attractive, but it is a poor bargain if the price is deliberately weakening an asset that benefits the broader American economy.

Vance focuses on what American producers lose from the dollar’s global role. But making the dollar weaker would mean giving up something valuable in return: cheaper imports, greater consumer purchasing power, and lower costs for businesses that rely on foreign inputs. A policy that makes American exports cheaper does so by making other things more expensive. If that is the bargain, policymakers should be clear about who is being asked to pay for it.